UPDATE 3-Ex-Jefferies trader gets 2 years in prison in fraud case

(New throughout, adds details from hearing, background,
comments)

By Jonathan Stempel

NEW HAVEN, Conn., July 23 A former Jefferies
Group Inc managing director convicted of defrauding investors
who traded mortgage bonds through a government program
established after the 2008 financial crisis was sentenced on
Wednesday to two years in prison.

Jesse Litvak, 39, had been convicted on March 7 on all 15
counts, including 10 counts of securities fraud and one count of
fraud under the federal bailout known as the Troubled Asset
Relief Program (TARP).

Litvak was the first person charged under a 2009 law banning
major fraud against the United States through TARP.

He was sentenced by Chief Judge Janet Hall of the U.S.
District Court in New Haven, Connecticut, who presided over the
jury trial. Hall also fined Litvak $1.75 million.

Defense lawyers had contended that their client, a married
father of two, had been unfairly singled out for behavior that
was common on Wall Street.

"I do not view you as singled out," the judge told Litvak.
"You lied. Maybe that's what people do every day on Wall Street,
but that still doesn't make it legal."

The prison term was longer than the maximum 14 months
requested by Litvak. It was also shorter than the nine years
sought by prosecutors, who also wanted a $5 million fine.

Hall found the government request unduly harsh.

The judge told Litvak she believed he would not commit
another crime and, citing many supportive letters she received
from the defendant's family, friends and colleagues, said: "You
sound like a person that's worth knowing."

Litvak showed little emotion and did not speak in his
defense. He is expected to surrender by Nov. 5. His lawyers
declined to comment afterward.

The U.S. Department of Justice has been criticized by
investors, politicians and others for not prosecuting more
people on Wall Street over misconduct related to the financial
crisis.

Federal prosecutor Jonathan Francis insisted at the hearing
that Litvak was not singled out for prosecution.

"Someone has to go first," he said.

CULTURE

Prosecutors accused Litvak of lying to customers such as
AllianceBernstein Holding LP from 2009 to 2011 by
inflating prices of mortgage-backed securities, concealing what
Jefferies paid for the bonds, and inventing sellers.

They said Litvak's activity generated more than $2 million
for Jefferies and boosted his pay by hundreds of thousands of
dollars.

Among the investors cheated were participants in the
Public-Private Investment Program, a TARP initiative designed to
restart the mortgage debt market, prosecutors said.

Litvak countered that his customers were professionals who
could tell whether prices were fair, and that his activities
were commonplace within the industry.

"The culture at Jefferies and on Wall Street really did
affect Mr. Litvak's judgment" about what was acceptable, his
lawyer Patrick Smith said.

Smith said his client's customers thought they were getting
good prices, making his case different from frauds such as
Bernard Madoff's, where victims suffered punishing losses.

After the hearing, U.S. Attorney Deirdre Daly said she has
an "active an ongoing investigation" into financial misconduct
and that Litvak's "significant" punishment should deter others.

"It tells anyone who works on Wall Street that if they lie
to their customers or cheat their investors, that they risk
going to jail," Daly said in an interview.

Jefferies, a unit of Leucadia National Corp, agreed
on March 12 to enter a nonprosecution agreement and pay $25
million to settle criminal and civil probes into its alleged
failure to supervise Litvak and other traders.

The case is U.S. v. Litvak, U.S. District Court, District of
Connecticut, No. 13-cr-00019.
(Editing by Jeffrey Benkoe, Grant McCool and Howard Goller)

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